State-owned bank provides North Dakota's economic funds

North Dakota's Economic Development Commission engages in activity
similar to other states' commissions: It counsels businesses, tries
to lure companies to the state, negotiates with international trading
partners and even manages the state's tourism budget, among many
other responsibilities.

But it does not make loans.

And it does not provide venture capital.

Unlike its neighbor to the south, which employs a $40 million
war chest for economic development loans, or similar programs in
other states, North Dakota does not maintain a special fund for
new or expanding businesses.

But North Dakota does have one other source that is unique in
the nationa state-operated bank. And, aside from federal funds
that every state receives, the Bank of North Dakota is likewise
the state's main tool for generating economic development funds.

The problem with the Bank of North Dakota (BND), however, is that
it is run like a private bank, meaning it must turn a profit and
it must pay a market rate on deposits, according to BND President
Joe Lamb. Just like private lenders, then, the BND must charge market
rates on its loans. Hence, whereas other states have created programs
offering loans with reduced rates, North Dakota's economic lending
tool does not enjoy the benefits of a subsidized rate.

And, while the BND does not have below market rate lending programs,
it does have lending plans geared toward economic development, including
a Small Business Loan Program and a Business Development Loan Program.

The Small Business Loan Program allows the BND to participate
in a total loan package of $250,000, of which the bank's share cannot
exceed $187,500. The Business Development Program is designed to
assist new and existing businesses obtain loans that have a higher
degree of risk, a program that comes closest to emulating other
state's lending plans. However, even then the bank's share of a
loan may not exceed $500,000. Together, the Small Business and Business
Development programs accounted for about $5 million in loans for
1988.

Also, when this article was prepared, the bank's commercial rate
was at 10.5 percent, and while that's an attractive rate compared
to some commercial lending rates, it is by no means equal to South
Dakota's 3 percent lending fund or other states' generous lending
programs.

What the state needs, Lamb said, is a revolving pool of funds
similar to other states, where loans with more risk are more acceptable.
The key to such a pool may be in the BND's earnings. Of the bank's
more than $24 million in earnings over the last two years, $14 million
was returned to the state's general fund, $3 million went to the
state's revolving loan program for beginning farmers, and the rest
was disbursed to other programs, including Red River flood relief
and the state's centennial tree planting program.

In other words, said Lamb, the legislature sees the bank's earnings
as fair game for state government financing. The bank's president
would rather see a large portion of those earnings dedicated to
economic development lending.

But as Lamb well knows, such a plan may only be a pipe dream.
Following defeat of the state's three new tax measures in a special
Dec. 5 referendum, the state legislature will likely continue to
tap the bank's earnings as a source of state funding, and the likelihood
of North Dakota creating a special economic development fund doesn't
seem great.